I started studying geology, then went exploring, but found it more comfortable writing about the business of mining than hiking across a million square miles of the Australian outback. In a career which started in the nickel boom of 1968 I’ve seen the extreme highs and lows which go with the boom/bust nature of the raw materials sector. I’ve written for many publications and wire services, including Reuters and the world’s original mining magazine, Mining Journal, interviewing industry leaders from the late Harry Oppenheimer to Glencore boss, Ivan Glasenberg. In that time, I’ve never forgotten that mining and commodity prices are cyclical, and anyone who says “this time it will be different” has never even got close to an industry driven more than any other by that irrefutable law of economics; supply rising to meet demand – even if the demand is super-charged courtesy of the Chinese industrial revolution.

China’s crackdown on conspicuous consumption and gifting by officials, which has seen a number of big-name brands pull out of the country, has emerged as a threat to the revival of a product sometimes seen as the ultimate luxury, diamonds.

Investors at the event voted with the feet when it came to the topic of diamonds, filling to overflowing, a lunch-time talk by Johan Dippenaar, chief executive of one of the world’s only pure-play diamond mining companies, London-listed Petra Diamonds.

Affordable Luxury

The attraction of Petra is that it operates four diamond mines in South Africa and one in Tanzania, which provides a broad mix of gems, and has focussed production on a market segment Dippenaar calls “affordable jewelry”, or “mass luxury” — which is code for low-priced stones valued between $200 and $2000 per carat.

Petra also uncovers the occasional “special” gem such a 25.5 carat blue-colored gem found last year in its Cullinan mine in South Africa and sold for $16.9 million.

Current plans call for Petra to produce three million carats of diamond a year, with most output heading for buyers in the U.S. which remains the world’s biggest single market for diamonds, with China the second biggest, and fastest growing, market segment.

The future challenge for all diamond miners will be in convincing Chinese buyers that a diamond is not a luxury item that will land them in hot water with government authorities.

Dippenaar is confident that Petra will not have a problem growing its share of the Chinese diamond market which is dominated by the traditional suppliers of gems, such as De Beers and the Russian diamond giant, Alrosa.

Selling A Big Blue

A test of his confidence will come when Petra puts onto the market its latest “special”, a 29.6 carat blue, found in the Cullinan mine last month, and yet to be valued – not that this stopped one member of Dippenaar’s audience of eager investors in Cape Town asking whether the company would get as much as the $60 million for the gem.

The Petra chief executive did not dismiss the possible price, but ask if the person asking the question was a buyer at that price.

Until China launched its luxury-goods crackdown it was likely that the latest big gem would be heading for Hong Kong or Shanghai. It now seems more likely that it will be New York bound.

Despite being in the diamond business Petra has struggled to grow its profits largely because of the heavy capital commitment required to dig deep to extract gems in steeply plunging kimberlite pipes which are the ancient volcano cores which host most of the world’s diamonds.

Dippenaar told his Cape Town audience that much of the capital required to reach an annual output of five million carats from the 2019 financial year had been invested with revenue in that year forecast to hit $1 billion. No profit forecast has been provided.

With a resource base estimated to stand at 310 million carats Petra has the potential to be a world-class diamond producer for decades with the critical question being whether a hiccup in the Chinese luxury goods market will slow growth in demand.

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